Trying to understand the European Union's complex proposed overhaul to its state-aid rules — a partial response to the competitive threat posed by the US's $369 billion Inflation Reduction Act — is one of life's humbling moments, like sitting next to an astrophysicist at a dinner party.
The "Green Deal Industrial Plan for the Net-Zero Age" has plenty of ideas for how to simplify and speed up the approval of government support for companies and sectors, but it also has many layers of rules, requirements and limits to ensure that there's no a subsidy free-for-all. The CliffsNotes version might be: Industrial policy, cast aside as a relic during globalization's heyday, is back as a hot-button issue.
But whose industrial policy? Paris and Berlin are predictably most keen to favor big projects and big companies. Their smaller neighbors are less thrilled. Caught in the middle is the European Commission, where antitrust boss Margrethe Vestager is trying to make everyone happy — hence the complexity. Vestager's own position is having to shift from being the single market's enforcer-in-chief — blocking Alstom SA and Siemens AG from merging, keeping Big Tech in check — to temporarily bending her own rules for the sake of the post-Covid domestic economy.
This all sounds like one of those arcane policy fights in Brussels that may only serve to hobble the EU. Finding common ground is at least a month away. The EU's 27 countries can't even agree on whether the IRA needs a riposte, with countries like Ireland and Finland arguing instead for a friendly compromise with the Biden administration and a focus on cutting red tape at home. "Frugal" countries such as the Netherlands are opposed to throwing fresh money at the problem, given Covid recovery funds have yet to be fully spent.
But as fraught and risky as the Commission's proposals are, they also look worth trying.
Biden's green subsidies, favoring domestic manufacturers, should serve as a geopolitical wake-up call. The EU is already haunted by its lost decade of the 2010s in terms of economic growth, technological lag, and dependencies on China and Russia, revealed by the double whammy of Covid-19 and the Ukraine invasion. Throw in the global investment needs of the green transition — a thirtyfold increase in the stock of electric vehicles, exponential growth in battery-manufacturing capacity, and a tripling of power-sector investments, according to Alessio Terzi's book "Growth for Good" — and it's clear that Europe needs huge investments to make up for lost time while also keeping up with the US and China.
Simplifying state aid is no panacea, but it will at least have the consequence of kickstarting spending and speeding up the bloc's ability to respond to a world where US subsidies are tempting European industry and China is a leader in green-energy investment.
One measure, for example, will allow EU countries to "match" green-tech subsidies unfairly dangled by countries outside the bloc. This is key at a time when natural-gas prices are still a lot higher in the EU than in the US, making the latter look more attractive for new projects. There will also be more flexibility on aid for less developed regions and for small businesses.
And while US subsidy rules still look simpler, Barclays strategists estimate EU proposals could exceed the US's $440 billion of decarbonization spending over the next decade, largely by reorienting unused pandemic recovery funds. Although beneficiaries might look like big industrial names like Volkswagen AG, Siemens or ABB Ltd, the good thing about these proposals is they explicitly tie aid to green goals around renewable energy, decarbonization, net-zero tech and supply chains — they're not propping up national champions. If and when a planned EU carbon border tax comes to pass, it should also help dissuade manufacturers from shifting production outside the bloc to reimport inside it.
There's a fine balance between bending the rules and breaking them, however. Tommaso Valletti, a professor at Imperial College who formerly worked with Vestager as chief competition economist, tells me it's a good thing that industrial policy is back on the European agenda after having been seen as a recipe for wasting money in the past. But, he says, the EU should be "very careful" not to lose the benefits of a rules-based single market, where big countries with the deepest pockets can't freely out-subsidize their smaller neighbors.
A lot rests on the shoulders of Vestager and her more dirigiste colleague Thierry Breton in ensuring this threat — feared by countries including Vestager's home country of Denmark — doesn't come to pass. It will be easier said than done. France and Germany account for up to 80% of extraordinary state aid approved since March 2022. To help ensure a level playing field, perhaps the idea of new funding via a "European Sovereignty Fund" will become more attractive. Or, a long-awaited capital markets union to better unite the EU's 27 fragmented financial markets.
Beyond the fine art of spending green aid is a bigger question: Can the EU move beyond tradeoffs and compromises at the national level, and actually define a successful bloc-wide industrial policy? 
Despite nostalgia for the Cold War-era cooperation that created Franco-German plane-maker Airbus SE, neither Paris nor Berlin have a stellar track record here. One January 2022 European Commission discussion paper recommended heeding more global lessons from the US, Japan and China: "Do" prioritize innovation, encourage entrepreneurship and protect critical technology; "don't" pick winners, favor incumbents or empower vested interests.
It doesn't take an astrophysicist to see this is sound advice — but putting it into practice might be a different story.
More From Bloomberg Opinion:
• ChatGPT Shows Just How Far Europe Lags in Tech: Lionel Laurent
• Leveraged Real Estate in Europe Faces Its Reckoning: Chris Hughes
• Inflation May Soon Peak in the Grocery Aisle: Andrea Felsted
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Lionel Laurent is a Bloomberg Opinion columnist covering digital currencies, the European Union and France. Previously, he was a reporter for Reuters and Forbes.
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Analysis | Big Tech's Nemesis in Europe Is Bending Her Own Rules - The Washington Post
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